Mario Christodoulou, Accountancy Age, Friday 24 September 2010 at 17:25:00

Big Four firm submission defends status quo


The audit market is ?fiercely competitive and transparent? according to BigFour firm Deloitte, which sees no reason to open the top-heavy industry togreater competition.

Deloitte believes audit quality is ?higher than ever? and said it has seen?no evidence of anti-competitive behaviour?, according to its submission to theupcoming House of Lords inquiry into audit competition.

?Our experience is that the listed-company audit market is one of the mostcompetitive,? the firm said.

However, in a July report, by the Organisation for Economic Co-operation andDevelopment (OECD) Deloitte joined fellow accounting firms PwC, KPMG, Ernst& Young, Grant Thornton and BDO in warning of so-called ?Big Four clauses?which prevent companies selecting an audit firm outside the Big Four.

?In certain countries including the USA, UK, Germany, Spain and Finland wehave encountered clauses or requirements in contractual agreements betweencompanies and their banks or underwriters that state that only the Big Fouraudit firms can provide audit services to the company,? firms stated in theirjoint submission.

?Such clauses could also create the perception that only the largest auditfirms have the necessary attributes to audit financial services companies orlarge corporations, thereby potentially limiting competition.?

The statement is believed to be the first time the firms have admitted to theexistence of Big-Four clauses, often contained in credit agreements betweenbanks and companies. The joint submission will likely undermine efforts by theBig Four to argue restrictive covenants either do not exist or are not asignificant issue.

The House Lords is investigating whether there is enough competition at thetop end of the audit market, and what effect the present domination by Big-Fourhave on audit quality.

Large mid-tier firms like Grant Thornton and BDO have warned about thepotential catastrophic risk associated with a Big Four collapse. Grant Thorntonestimates that in the event of a Big Four firm collapse, 20% of the 7,200largest businesses in the G20 would be left stranded without an auditor.

David Herbinet, head of public interest markets at mid-tier audit firmMazars, is pushing for the dual-audit system to be adopted, which is currentlyused in France.

?The mood is clearly there for change,? he said.

?People who believe the status quo can continue are in the prehistoric age.?